How to create a financial forecast for a concept store?

Creating a financial forecast for your concept store, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows. 

This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your concept store is not that hard.

In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.

Without further ado, let us begin!

Why create and maintain a financial forecast for a concept store?

The financial projections for your concept store act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability. 

To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.

During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis. 

Your concept store's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.

What information is used as input to build a concept store financial forecast?

A concept store's financial forecast is only as good as the inputs used to build it.  

If you are creating (or updating) the forecast of an existing concept store, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.

If you are building financial projections for a concept store startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.

For a new venture, you will also need a precise list of the resources needed to keep the concept store running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later). 

Let's now take a closer look at the elements that make up your concept store's financial forecast.

The sales forecast for a concept store

From experience, it is usually best to start creating your concept store financial forecast by your sales forecast.

To create an accurate sales forecast for your concept store, you will have to rely on the data collected in your market research, or if you're running an existing concept store, the historical data of the business, to estimate two key variables: 

• The average price 
• The number of monthly transactions

To get there, you will need to consider the following factors:

Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.

The operating expenses for a concept store

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your concept store on a daily basis.

Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based. 

Operating expenses for a concept store will include some of the following items:

This list will need to be tailored to the specificities of your concept store, but should offer a good starting point for your budget.

What investments are needed to start or grow a concept store?

Your concept store financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.

For a concept store, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your concept store.

The financing plan of your concept store

The next step in the creation of your financial forecast for your concept store is to think about how you might finance your business.

You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.

Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.

Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.

What tables compose the financial plan for a concept store?

Now let's have a look at the main output tables of your concept store's financial forecast.

The profit & loss forecast

The forecasted profit & loss statement will enable you to visualise your concept store's expected growth and profitability over the next three to five years.

A financially viable P&L statement for a concept store should normally show:

• Sales growing above inflation
• Stable or expanding (ideally) profit margins
• A net profit

This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.

The projected balance sheet

Your concept store's forecasted balance sheet enables you to assess your financial structure and working capital requirements.

It is composed of three types of elements: assets, liabilities and equity:

• Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
• Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
• Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.

The cash flow forecast

Your concept store's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the concept store:

• Operating cash flow: shows how much cash is generated by the operating activities
• Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business 
• Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)

Keeping an eye on (and regularly updating) your concept store's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.

If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your concept store's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

Which tool should you use to create your concept store's financial projections?

Building a concept store financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.

Using online financial projection software to build your concept store's forecast

The modern and easiest way to build a forecast is to use professional financial projection software such as the one we offer at The Business Plan Shop.

There are several advantages to using specialised software:

• You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
• You have access to complete financial forecast templates
• You get a complete financial forecast ready to be sent to your bank or investors
• You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
• You can create scenarios to stress test your forecast's main assumptions
• You can easily update your forecast as time goes by to maintain visibility on future cash flows
• You have a friendly support team on standby to assist you when you are stuck
• It’s cost-efficient and much cheaper than using an accountant or consultant (see below)

If you are interested in this type of solution, you can try our forecasting software for free by signing up here.

Calling in a financial consultant or chartered accountant

Outsourcing the creation of your concept store financial forecast is another possible solution.

This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.

Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000. 

Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra. 

If you decide to outsource your forecasting:

• Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively. 
• Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).

Why not use a spreadsheet such as Excel or Google Sheets to build your concept store's financial forecast?

Creating an accurate and error-free concept store financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.

Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.

The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately. 

This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.

Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.

Use our financial projection templates for inspiration

The Business Plan Shop has dozens of financial forecasting templates available.

Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.

Whether you are just starting out or already have your own concept store, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.

Takeaways

1. Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
2. Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your concept store future cash flows may look like.
3. Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.

This is the end of our guide on how to build the financial forecast for a concept store, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.

Also on The Business Plan Shop

• Example of financial forecast
• How to create a sales forecast for a business?
• Sample financial forecast for business idea

Know someone who owns or is thinking of starting a concept store? Share our forecasting guide with them!